As motivational speakers like to say, if we confront our fears, they will lose their power over us. Take the subject of this month’s cover story, “Brave New Market.” Many observers have sounded the alarm about newfangled developments in the equity markets, in particular high-frequency trading (HFT). They blame such innovations for scaring away investors, largely because they increase volatility and underscore the technological superiority of the pros. And to be sure, the “flash crash” of 2010 was terrifying: there’s nothing good about watching the Dow plunge 1,000 points and then recover in a matter of minutes.
But as contributing editor Randy Myers reports, HFT may be losing its power to frighten. Some CFOs have become sanguine about the volatility, while the Securities and Exchange Commission has installed “circuit breakers” to curb market swings. Meanwhile, HFT volume is falling. Besides, there’s a far more prosaic explanation for why investors have been pulling out of the market: they haven’t been making money. The 2000s are regarded as a “lost decade” for stocks, and old-fashioned market crashes and economic recessions were to blame, not algorithmic trading.
Indeed, if we don’t confront our fears, they may distract us from more pressing problems. In 2008, as part of a story on the Presidential contest between Barack Obama and John McCain, we asked CFOs to rank the most important issues facing their businesses. The number-one issue? Inflation. (Credit markets and tax policy were numbers two and three.) Few things spook financial folks more. Four years later, inflation is still nowhere to be found. The Federal Reserve doesn’t seem too concerned about it, having embarked on a third round of quantitative easing. “Exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015,” says the Fed.
Today, the number-one issue for finance chiefs is jobs and unemployment, as we report in our story “Healing America’s Economy: Obama vs. Romney.” That makes sense: having soared to 10% in 2009, the unemployment rate continues to hover above 8%. Inflation is still a concern, but the 887 CFOs we polled in September no longer rank it among their top five business issues (it was seventh). This fear seems to have found its proper place for the time being.
One thing remains constant from 2008: the overwhelming preference of finance chiefs for the Republican candidate. In our poll four years ago, CFOs chose McCain over Obama by 63% to 26%. Check out this year’s survey results to find out not whether, but by how much, Mitt Romney beat Barack Obama this time around.